Nationwide Oil Pty Ltd & Anor v. Interline Hydrocarbon Inc
[2005] QSC 331
•02/11/2005
SUPREME COURT OF QUEENSLAND
CIVIL JURISDICTION
[2005] QSC 331
BYRNE J
No BS8259 of 2005
| NATIONWIDE OIL PTY LTD ACN 066 383 364 | First Applicant |
| and | |
| BRENZIL PTY LTD and INTERLINE HYDROCARBON INC and IMF (AUSTRALIA LTD) | Second Applicant First Respondent Second Respondent |
BRISBANE
..DATE 02/11/2005
JUDGMENT
HIS HONOUR: The defendants seek a stay of the plaintiff's
claim. They contend that its prosecution with the financial
support of IMF (Australia) Pty Ltd ("IMF") constitutes an
abuse of the Court's process.
The plaintiff claims against Nationwide Oil Pty Ltd moneys due
and owing pursuant to, or damages for breach of, an agreement
concerning the design, construction and assembly of a waste
oil refinery in Sydney. It makes other claims against both
defendants: for example, for royalties pursuant to claimed
contractual entitlements.
The argument has proceeded on the assumption that the
plaintiff's claims are fairly arguable and will, if
successful, result in judgments for substantial sums.
The defendants have counterclaimed for relief which includes
an amount alleged to exceed the value of the plaintiff's
claims. Nationwide seeks to set-off its counterclaim in
extinguishment of the plaintiff's claim. The contentions
advanced in the counterclaim are also, for the purposes of
this application, taken to be fairly arguable.
The plaintiff is impecunious. It lacks the resources to
satisfy any judgment for a money sum that may be obtained by a
defendant on the counterclaim.
The defendants successfully applied for security for costs in
respect of the plaintiff's claim. The security ordered has
been provided. It is not suggested that the fund is now or
may in future be insufficient to meet any liability of the
plaintiff in costs in connection with the prosecution of its
claim, should that claim fail.
IMF and the plaintiff are parties to a funding agreement.
Under it, IMF is entitled to receive, from a successful
outcome for the plaintiff, reimbursement of moneys it has
expended in facilitating the prosecution of the plaintiff's
claim to judgment, and up to one-third of the total benefits
the plaintiff derives from the case.
Because the plaintiff is impecunious and no other corporation
or person is liable to satisfy any judgment the defendants may
obtain on the counterclaim, the defendants inevitably confront
this prospect: that the plaintiff, funded as it will be by
IMF, prosecutes its claim to judgment, but should a judgment
on the counterclaim exceed the amount of any judgment in the
plaintiff's favour, the defendants (in particular the second
defendant) will receive nothing. In the circumstances,
appropriately enough, the argument has also proceeded on the
assumption that such an outcome is on the cards.
The defendants contend that the existence of that possibility
means that the intervention of IMF in the plaintiff's
proceedings constitutes an abuse of process. Two propositions
are advanced.
First it is said that, by funding this case, IMF is engaged in
"litigation trafficking" which, therefore, constitutes an
abuse of process.
Secondly, the defendants contend that the involvement of IMF
as a speculator for a profit to be derived from success on the
plaintiff's claims, without exposure by IMF to the burden of
having to satisfy any judgment on the counterclaim, "is a
cynical exploitation of the Court's process for profit rather
than involving the use of the Court's process to vindicate
rights and achieve a fair balance". The mere fact that
neither IMF nor anyone else (other than the plaintiff) is
exposed to the prospect of having to satisfy any liability in
the event of success by a defendant on the counterclaim is
said to mean that the prosecution of the plaintiff's claim
involves the use of Court process as an agent of oppression,
converting the Court's procedure into an instrument of
potential injustice and unfairness. According to the
defendants, such unfairness emerges from a consideration of
the course that settlement negotiations might take: more
particularly, that the defendants will know that success on
their counterclaim is meaningless (at least beyond the extent
to which it might extinguish any liability to the plaintiff
established on the claim). Only if IMF, having intermeddled
in the prosecution of the plaintiff's claim with a view to
profit, assumes liability to the defendants on their
counterclaim can an abuse of the Court's process be avoided,
or so it is said.
Now, there is no suggestion that, by the terms of the funding
agreement or otherwise, IMF's involvement involves the risk of
some inappropriate conduct in the litigation.
Rather, the alleged abuse of process is said to arise from the
probability that the defendants will not realise anything in
respect of a judgment on the counterclaim.
The mere fact that IMF's business is the funding of litigation
cannot mean that its financial support in the prosecution of
the plaintiff's apparently valuable claim through to a
judgment constitutes an abuse of the Court's process.
Without more, external funding is not tantamount to such an
abuse. Were it otherwise, legislatively supported regimes for
State legal aid, administered through legal aid commissions,
would attract much the same opprobrium (even though legal aid
is not provided in the expectation of deriving a profit).
Moreover, even if IMF's only interest in the litigation is
fairly characterised as an investment, if that matters, the
same is not true of the plaintiff, which stands to reap
substantial rewards from the successful prosecution of its
claim.
In QPSX v. Ericsson (2005) 219 ALR 1, French J, in a
comprehensive review of the modern authorities, identifies
"economic benefits to be derived from legitimate litigation
funding arrangements" - see paragraph 54 - which are scarcely
contrary to public policy. His Honour also points out that
whether an agreement may be unenforceable as champertous is
not to the point in deciding whether the supported proceedings
amount to an abuse of process.
The objection that there is here involved some "trafficking"
in litigation which, of itself, exposes an abuse of process is
incorrect.
The next question is whether the current IMF funding
arrangements, involving as they do that IMF will not be liable
on the counterclaim, constitute, as it was put, a cynical
manipulation of Court procedures with a view to obtaining
profit which deserves to be characterised as an abuse of
process.
The predicament the defendants confront - non-recovery on a
judgment on a counterclaim for compensation overtopping the
plaintiff's claim - has always inhered in the contractual
arrangements the parties put in place initially.
The defendants did not, it seems, take guarantees from the
plaintiff's directors, shareholders or holding company. Nor
did they conclude an arrangement to secure the value of any
future litigious claim.
In other words, an ordinary business risk to which the
defendants were exposed from the outset by the contractual
arrangements they were content to conclude has materialised.
The defendants have always been exposed to the risk that the
plaintiff might, in the event of litigation, obtain from an
external source - as examples, directors, shareholders or a
financial institution such as a bank - enough money to fund a
case to trial and to meet any order for security for costs,
but no more. When the contracts among the parties were
entered into, tney were content to accept that any monetary
claim they might make in connection with the contracts with
the plaintiff would neither be secured, nor enforceable
against anyone else.
As it happens, the consequential business risk has eventuated.
And no abuse of process is involved in a state of affairs
which leaves the defendants still unsecured in respect of the
value of the counterclaim, and entangled in litigation against
another party which, despite recourse to external funding,
will likely never have more money than is needed to take its
case to judgment.
The application is dismissed.
Further order that the applicants pay the respondent's costs
of and incidental to the application, to be assessed.
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